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1 30 th March 2004 # 10 Editorial Dear Madam, Dear Sir, We are pleased to introduce this special edition of our Investor Newsletter dedicated to the presentation of the 2003 Annual Results of I.R.I.S. You will also find in this edition recent news and product announcements of our company has been a consolidation year for I.R.I.S. In a difficult economic context, we have tried to improve the quality of our financial results, have been working on the improvement of our organization and have maintained an important R&D effort to improve our product line. There has been no change of perimeter compared to We are pleased to report a number of very positive accomplishments: We have been able to increase both our revenue ( 42,729 million, + 2,6%) and our Gross Margin ( 24,750 million, +2,37%) Our costs well under control have decreased in 2003 by -1,38% The Operational Profit (EBIT) has increased very significantly ( 2,708 million, +32%) The net result is positive ( 0,636 million) allowing the management to propose the distribution of a first dividend since the IPO to the General Assembly of May 18, Besides these key figures of our Income Statement, it is important to keep in mind the following key figures of our balance sheet: o I.R.I.S. has no long term debt (debt at more than 1 year) o The net cash position of I.R.I.S. is positive o I.R.I.S. net cash position has been improved by more than 3 million in 2003 In 2003, the management has continued to simplify the legal organization of the company, keeping only one legal entity per country. The new integrated reporting and accounting system has been operational all year in 2003, resulting in improved reporting, better forecasting and budget control The R&D effort has been maintained at the same level as 2002, resulting in a record number of new product introductions in These products have been very well received by the market (cfr our section award and Press reviews) and this improved product line will definitely constitutes an asset for further growth of the company. Overall, 2003 has been an excellent year for I.R.I.S. despite: Weak general economic conditions Significant loss of revenue and profit due to a very weak dollar (more than 10% of the revenue of I.R.I.S. is made in the USA). The fact that further integration and optimisation still have to be done to improve productivity and efficiency. The management of I.R.I.S. is positive about The interest for our technologies and products by our customers remains strong, the order backlog beginning of 2004 is higher than one year ago and our product line has been improved. 1

2 The objective of the management will be to improve the profitability of the company while maintaining a reasonable growth for the Revenue and the Gross Margin. Beginning of 2004, I.R.I.S. has completed the acquisition of Omnis ECMS, an integration company specializing in Document Management Systems, located in Luxembourg. This acquisition of Omnis should contribute to the profitability of I.R.I.S. already in We hope that you will find the content of this newsletter both informative and agreeable to read. Should you have any questions related to the content of this newsletter, don t hesitate to contact us directly. Yours Sincerely, For the I.R.I.S. Executive Committee, Pierre de Muelenaere President & CEO I.R.I.S. Group Etienne Van de Kerckhove CEO I.R.I.S. Group 2

4 The I.R.I.S. activities I.R.I.S. develops and markets internationally a range of solutions to scan and intelligently recognize documents and to manage and archive electronic documents. I.R.I.S. has signed licence agreements and partnerships for its document reading technologies with major IT players such as HP, Apple Computers, Kodak, Samsung, Daewoo etc. Furthermore, I.R.I.S. distributes its software packages on a worldwide basis; the sales of these products have soared in the United States and Asia. I.R.I.S. supplies comprehensive solutions (for form reading, invoice recognition, the management of correspondence, document management, archiving and data storage) to government agencies, financial institutions, federations, industrial and service companies. Some clients are the Belgian and French Ministry of Finance, the European Commission, the banks Dexia and BNP Paribas, the Luxemburgh Parliament, the European Investment Bank and France Télécom. I.R.I.S. has offices in Louvain-la-Neuve and Brussels (Belgium), in Luxembourg (Luxembourg), in Paris (France) and Delray Beach (USA). Repeating the objectives for 2003 Summary of the results Says Pierre De Muelenaere, president and CEO I.R.I.S. Group: As the year 2003 took off, I.R.I.S. management fixed and announced the main objectives for the fiscal year: improving the profitability from operations, return to profit after a year 2002 that was characterized by some exceptional losses, fine-tuning the internal organization of the company in order to improve the efficiency, strengthening the products and the proprietary technologies. The results of 2003 indicate that the financial objective was reached: we increased our sales (by 2.6%) on a depressed market. We also reduced our general expenses somewhat (-1.38% in comparison with 2002); our nominal gross margin went slightly up (+2.37%). As a result, our income from operations went up to 2,708,942 euro, which stands for strong growth (+32.28%). The net profit is 636,072 euro (whereas the previous year, we recorded a loss of 1,950,760 euro). As far as the other objectives are concerned, several internal procedures were substantially improved, made more efficient, and we brought a record number of new products to market. This effort will help us to achieve our objectives for the year Commenting the figures Growth of sales figure and gross margin The consolidation perimeter did not change during the year 2003, as I.R.I.S. GROUP did not acquire any companies last year. In 2003, the turnover grew (by 2.6%) despite a generally depressed market; note that the sales figures of several direct competitors decreased. Few enterprises and government agencies were inclined to invest and all the less so in IT projects. Employing a constant dollar, the sales increased by 3.58%. For professional solutions, the gross margin reached 19,635,748 euro (+0.6%) with stable sales figures on the various territories. This constitutes a real achievement on a highly competitive market as government investments went down considerably and several players didn t hesitate to lower their prices substantially. The gross margin for the office products was 5,114,448 euro (+9.8%) with a decisive increase of the turnover in the United States. (The weak dollar depresses this growth when it is expressed in euro.) This result confirms that large IT companies and individual customers appreciate the quality of the I.R.I.S. products and technologies. 4

5 The gross margin generally remained stable at 57.92% (compared to 58.05% in 2002). Strong growth of income from operations and cash flow The income from operations is 2,708,942 euro (+32%). The cash flow from operations (EBITDA) went up by 15.44% in The income from operations (EBIT) grows more than the cash flow from operations (EBITDA) because the amortizations were reduced in the year 2003 because some important investments were entirely amortized before the end of the fiscal year. As a result, the group s cash position and balance sheet improved considerably (see below). Large impact of dollar on financial result The steady decline of the dollar in 2003 led to conversion losses and negative conversion differences for a total amount of euro (vs. 342,562 euro in 2002). Alert management of the available cash allowed the company to reduce the bank loans and interests to 200,155 euro (vs. 478,790 euro in 2002) and to generate some interests by investing available cash ( euro). The amortization of goodwill on acquisitions is 742,859 euro (vs. 858,237 euro in 2002). The amortization we recorded for the goodwill of Amos at the end of 2002 explains this decrease. Minimal impact of extraordinary factors The year 2002 was characterized by significant extraordinary charges (the participation in Amos was depreciated and a reserve was created for litigation in the United States). In 2003 the extraordinary elements mainly concern the completion of the restructuring of Amos in the United States. The amounts involved are much smaller: an extraordinary depreciation is applied to a liability that figures on the balance sheet since Amos was acquired in 2001: 110,920 euro. a conflict with the former manager of Amos was resolved: 38,580 euro. A very healthy balance sheet gets even healthier in 2003 In 2003, the company improved the structure of its balance sheet once more; I.R.I.S. disposes of a strong solvability and an equally strong cash position: ratio net equity - total balance: 62.20% (vs % at the end of 2002) ratio current assets - current liabilities: 1.81 (vs at the end of 2002) I.R.I.S. has virtually no long-term debt (with a maturity over 1 year). Due emphasis was put on the management of the operational funds; as a result, we were able to improve the company s liquidity: I.R.I.S. no longer has any net debt outstanding at banks. the net cash position (available cash + financial investments financial debts) is 2,752,976 euro. That s an improvement of more than 3 million euro compared to January The group still disposes of credit lines to be used as roll-over for 12 million euro - 8,750,000 euro of which cannot be revoked before mid

6 Commenting the operations Significant events of 2003 CEO Etienne Van de Kerckhove adds: We had some remarkable success stories for professional applications. With ScanFin for instance, I.R.I.S. and the Belgian Ministry of Finance have won the ICT award for Best Electronic Document Management Project for the Year 2003 and have won the BeLAIIM award for the Best ICT Project of the Year ScanFin is an application that reads VAT forms automatically; all proprietary I.R.I.S. technologies and the highly specific know-how of I.R.I.S. were applied in this project: scanning in forms, reading their contents automatically, exporting the dematerialised documents to an electronic document management (EDM) system and storing-archiving them. Given the complexity and size of this application, the juries emphasize both the quality of the technology and the high level of the project management: the comprehensive application was completed on time and did not exceed the foreseen budget. ScanFin is now operational and performs admirably. The resurgence of Amos is now a fact because of new orders from the American banking sector and a major order of licences by the French Ministry of Finance. These on-going orders will first and foremost influence the sales figure of the year The sales of products and technologies kept growing in adds Pierre De Muelenaere. We re now talking about licence agreements the OEM contracts with major scanner manufacturers such as HP, Kodak, Panasonic, Plustek were prolonged and new partnerships were signed with Apple, LaserFiche, Samsung, Daewoo and Case Logic and about the indirect sales via the distribution channels and the direct (Internet) sales via our e-shop. We saw record sales when we launched Readiris Pro 9; the introduction of the IRISPen Express and the I.R.I.S. Business Card Reader II were also highly successful. The sales accelerated towards the end of the year, a trend that is expected to exert a positive influence in There were no acquisitions in The management was able to integrate the various divisions quickly and moved fast to create R&D and management synergies. Says Etienne Van de Kerckhove: For instance, the tools for integrated reporting by all units of the group were completed. We tightened the general management of the company, and we re now in a position where we can monitor each activity more efficiently and much faster. The internal organisation was the key factor in this effort: The legal organization chart of the companies was simplified: today, a single management structure remains, and each territory is covered by a single operational unit. The reporting by each business unit is fast and accurate, which allows the management to keep a steady eye on the financial performance of each unit. The management, technical and commercial organisation was simplified: the efficiency was increased, as was the understanding of the role that each profit and each cost centre plays. As in the year 2002, the R&D effort was maintained at 3.5 million euro, but this investment was leveraged more efficiently. By reorganizing the development teams, I.R.I.S. was able to introduce a record number of new products in 2003: I.R.I.S. ScanMail (document management of correspondence), I.R.I.S. DocCenterWeb (document management), Formiris Pro 5 (form reading), Readiris Pro 9 (character recognition), the IRISPen Express (pen scanner) and the I.R.I.S. Business Card Reader 2 (recognition of business cards). 6

7 Significant events after the fiscal year I.R.I.S. Luxemburg has acquired Omnis ECMS as of January This take-over strengthens the leadership of I.R.I.S. on the market for professional electronic document management (EDM) solutions on the Benelux (Belgium-Netherlands- Luxembourg) territory; a positive contribution to the group s profitability is expected from 2004 onwards. In the beginning of 2004, the management signed a transaction was signed with the sellers of Amos that will reduce the consolidation difference of the purchase of Amos and reduce the debt with the sellers of Amos. In March 2004, I.R.I.S. put an end to litigation that started in the United States in This conflict was resolved without exceeding the financial reserve created for this purpose in 2002; there will therefore be no impact on the results of Outlook for 2004 The strategy of I.R.I.S. is to make the company in Europe and elsewhere a leading player on the Document to Knowledge market. To achieve this objective, the group gives priority to the following targets: continuously improving the proprietary technologies and the services offered to the client roster extending the offer of professional solutions to new territories maintaining a sustained effort to improve the profitability from operations The company s management is confident for the year 2004, despite the current economic climate that s characterized by a weak dollar and a delayed revival of the economic growth in Europe (which accounts for over 85% of I.R.I.S. turnover). The company has registered considerably more on-going orders and has invoiced distinctly larger amounts so far than was the case in the beginning of The costcontrol efforts are expected to generate additional benefits. But it goes without saying that the current economic climate is characterized by a delayed revival of the economic growth in Europe (which accounts for over 85% of I.R.I.S. turnover). The acquisition of Omnis should contribute to the growth of the sales figure and the growth of profitability as of Based on I.R.I.S. business plan for 2004, the company expects a reasonable increase of the gross margin and an improved profitability from operations. Proposal to pay a dividend The Board of Directors asks the General Annual Meeting to approve the payment of a dividend (fixed at 0.25 euro per share) for the first time. The auditor s report The auditors Ernst & Young (represented by auditor Eric Golenvaux) have announced that their in-depth auditing work was completed and yielded no significant corrections that should be added to the financial information provided in this press release. 7

8 Financial calendar Financial information General Annual Meeting: May at 2 p.m. Annual report: available last week of April Half year results: end of September. Visit the investor pages on our web site to receive our press releases in real time or to subscribe to the I.R.I.S. Investor s Newsletter. Contact for more information: Etienne Van de Kerckhove, CEO IMAGE RECOGNITION INTEGRATED SYSTEMS GROUP sa. Rue du Bosquet 10 - Parc Scientifique of Louvain-la-Neuve B-1435 Mont Saint-Guibert Tel: Fax:

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